Startup TeamBuy uses Chinese bargaining model

TORONTO (Reuters) - A Chinese method of bargaining is gaining traction in North America as shoppers use the power of numbers and the power of the Internet to get a better deal.

A screen shot of the website for Toronto-based daily deal startup TeamBuy. REUTERS/handout/TeamBuy

The Internet concept of collective buying is in part based on the Chinese “tuangou” system where organized mobs go into stores to bargain prices lower.

"I went to China with my mom, and discovered tuangou, which literally means team buying in Mandarin," said Edward Yao, co-founder of Toronto-based daily deal site TeamBuy (www.teambuy.ca). "It works. I've seen it. We're talking thousands of people going into a single store."

Yao said TeamBuy took the tuangou strategy and brought it online, following a model from U.S. sites like Groupon. Instead of structuring the deals around goods such as home appliances, they shifted the focus to services.

TeamBuy’s recent bargains include a $32-package at the Toronto Climbing Academy, worth $117, where 278 people snatched up the deal. An $897 spa voucher sold for $89, he said.

The sellers may lose in terms of profit margins, but they win the volume of a big group deal.

Yao said the marriage of social networking and bargain hunting proved lucrative. Yao began the company with three friends, and now commands a staff of 30.

The origins of the collective buying boom date back to November 2008, when Chicago-based and privately-held Groupon started touting online group buying.

One of the fastest growing web companies, Groupon recently said it had raised over US$130 million in their fourth round of financing, Forbes reported in an article on August 12.

This brought Groupon’s worth to $1.35 billion, making it one of a small cadre of startups that have passed the US$1 billion threshold.

“We have no plans to go public,” Rob Solomon, President and COO of Groupon told Reuters. “We have created the market, and now we would like to help define it too.”

Besides TeamBuy and Groupon (which opened a Toronto market in April), there are four other buying sites that are based out of Toronto, with many more scheduled to launch.

“It’s the perfect storm,” said Jeremy Zucker, who founded Wagjag, a Canadian group buy site, back in May. The popularity of social media networks, and the increase in web-savvy consumers looking for interesting deals in a still not-yet spry economy makes now the most opportune time, Zucker said.

But not everyone is buying it.

“To me, it is all a deal with a twist,” said John Deighton of Harvard Business School. “It’s a transitory attention-getting device to catch your eye, and your eye has a built in design not to be caught. There is no enduring long term value. A year from now, it will be passé.”

Solomon dismissed that.”The world is waking up to a new way of doing business,” and he stressed the social components built into the offerings, “You usually don’t go on kayak trips alone,” he said.